Large Businesses Briefed On Stricter Taxation Rules

(RFE/RL)–Senior government officials met with Armenia’s largest corporate taxpayers on Tuesday to clarify the controversial toughening of taxation rules approved by parliament last month despite serious misgivings voiced by the business community.

Top executives from more than 200 Armenian companies were given explanations on a package of amendmen’s to the country’s fiscal laws aimed at curbing widespread tax evasion.

The most important of the changes–effective from January 1–concerns the 20 percent flat tax on corporate profits that are routinely underreported or hidden by many private firms. According to the new tax law–any company with a reported profitability rate of up to 5 percent will now have to pay a 1 percent turnover tax in advance of every month. The profitability will be measured as the ratio of a company’s annual revenues to its aggregate assets.

Another major amendment allows the tax authorities to levy the 20 percent value-added tax (VAT) from a greater variety of imported goods at the point of their entry into the country. VAT is a key source of budgetary revenues of its government.

Senior officials from the State Taxation Service presented practical modalities of these and other changes to the invited business executives.

An owner of a large construction firm said that the new mechanism for the levying of profit tax will hurt his business because it usually gets paid for building contracts at the end of a year.

The one percent turnover will apply to even those entities that do not seek profits. The American University of America–which is largely funded by an Armenian-American charity–is one of them.

Another amendment endorsed by the National Assembly lifts virtually all restrictions n the inspection of businesses by tax officials. Armenian entrepreneurs have long complained that the tax collectors use inspections for harassing and extorting bribes from them.

"Some tax inspectors may abuse the new rules," said Sofia Vartanian–who runs a salt mining company in Yerevan.

According to deputy head of the State Taxation Service–Armen Alaverdian–the more frequent check-ups will primarily target shops and other retail entities suspected of not inputting their sales or services into the mandatory cash registers–adding that "the inspections must be unexpected."

The government expects that the fiscal changes will bring it 8 billion drams ($14 million) in extra tax revenues this year. Its 2004 budget projects a total of 256 billion drams in taxes and customs duties.


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